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ARE TRUSTS ONLY FOR THE RICH?

Davidov Law Group

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The process of estate planning should involve a significant amount of research. You don’t want to limit yourself and make less than ideal decisions based on a lack of information. There are misconceptions out there, and you can make mistakes if you buy into them. One of them is the notion that trusts are only for the rich.

Different Types of Trusts

There are certain types of trusts that are used exclusively by wealthy people. In many instances these trusts provide estate tax efficiency.

There is a federal estate tax in the United States, as well as a New York State estate tax. In 2014 the federal estate tax carries a $5.34 million credit or exclusion. In New York the estate tax exemption is $1 million. If you are arranging for the transfer of more than this amount to your heirs, you must take steps to mitigate your exposure.

Certain types of irrevocable trusts are used in the field of estate planning to provide estate tax efficiency. Trusts that are irrevocable can also be useful for asset protection purposes.

However, these are not the only types of trusts. Different types of trusts accomplish different objectives.

Revocable Living Trusts

In addition to irrevocable trusts there are also revocable trusts such as the revocable living trust. Revocable living trusts are quite useful for those who are not especially wealthy. In fact, these trusts would not be a good choice for people who are looking for estate tax efficiency and/or asset protection.

This is because you do not surrender incidents of ownership when you create a revocable trust. You maintain control of the resources that you convey into a revocable living trust.

You may act as both the trustee and the beneficiary while you are living. You can dissolve the trust entirely if this is your choice and do anything you want to do with the assets that have been conveyed into it.

Because you retain this level of control, assets in the trust would be looked upon as part of your taxable estate, and they would be fair game for individuals or entities seeking to attach your personal resources.

The reason why these trusts are popular is because they facilitate the transfer of assets outside of the process of probate. Probate avoidance is appealing to many people because the process can be costly and time-consuming.

When you maintain direct personal ownership of assets up until the time of your death and arrange for transfers through the terms of a last will, the heirs to the estate will not receive their inheritances until the estate has been probated.

If you create a revocable living trust, the trustee that you name to succeed you distributes assets to the beneficiaries according to your wishes outside of probate. As a result, the heirs receive their inheritances in a much more timely and efficient manner.

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You may be under the impression that Medicaid is not relevant to you because you are a middle-class individual without a great deal of financial need.

It is true that Medicaid is a need-based health insurance program that is jointly administered by the federal government along with each respective state government. Medicaid is a safety net for those with virtually no financial resources. This would include people of all ages.

If you have paid taxes all of your life as you have earned income you will accumulate enough retirement credits to qualify for the Medicare program when you reach the age of 65. If you are going to qualify for Medicare you may feel as though Medicaid will not be relevant to you as a senior citizen.

Long-Term Care Costs

All of the above makes sense on the surface, but there is the matter of long-term care costs to consider. According to the United States Department of Health and Human Services, the majority of Americans will need long-term care eventually. Nursing homes and assisted living communities are very expensive, and Medicare does not pay for this type of care.

Nursing homes and assisted living communities provide custodial care rather than medical care. Medicare does not pay for custodial care. It will only assist with up to 100 days of convalescent care after surgery.

This is why Medicaid enters the picture. Medicaid will pay for long-term custodial care. However, to qualify you must somehow stay within the upper asset limits. The resource allowance for an applicant in New York State is $14,550.

In spite of this, most of the senior citizens that are receiving long-term care are enrolled in the Medicaid program. How can this be?

The answer is complicated. For one thing, everything that you own does not count when Medicaid is determining the extent of your assets. Your home does not count up to a particular equity limit. The vehicle that you use for transportation does not count, and your personal effects, including wedding and engagement rings and heirloom jewelry, are not considered to be countable assets.

Plus, if you are married your spouse could retain ownership of shared assets up to a particular limit without impacting your Medicaid eligibility.

Given the complexity of Medicaid rules and regulations it is difficult for the layperson to make the appropriate preparations without experienced legal counsel.

If you would like to learn more about Medicaid planning we have a ready resource available that you may find to be of value.

We have prepared a special report on the subject of Medicaid planning. The report is yours absolutely free of charge. To access your version of the report, click this link: Free Medicaid Planning Report.

Should you have further questions after reading the report, contact our firm to request a free consultation.

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f you fail to update your estate plan, your assets may be given to the wrong people. Updating is something that many people forget to do. Making updates can often be an easy process, with the help of an attorney. If you want to control your assets, take a look at the following information. If you have any questions, or if you’d like to review and update your estate plan, contact an estate planning attorney.

If you have an estranged family member, you may have a lot of stress and anxieties about the future. It can be difficult thinking about whether another family disagreement will occur. If you wish to have no contact with a family member, you likely also want to make sure that your assets aren’t going to be distributed to him or her.

Take a look at this example:

Susan, 39, created her estate plan early in life. She wanted to make sure that her family was always protected. When handling her estate planning affairs, she decided to designate her younger sister, Alicia, as the beneficiary of her life insurance policy. Several years later, Alicia began abusing alcohol. She not only became a raging alcoholic, but she also began to steal Susan’s belongings. Susan was forced to cut her sister out of her life completely. Unfortunately, she forgot to update her beneficiary designations. When Susan suddenly died a few years later, Alicia received her life insurance assets as well as a large portion of her estate.

If you’re not careful, this can happen to you! You need to make sure that all aspects of your planning are reviewed and updated on a regular basis. This will ensure that your wishes are always respected.

  • Check beneficiary designations.
  • Meet with an attorney to review your plan every 3 to 5 years.
  • If you experienced significant life changes, take the time to make updates!
  • Don’t put your planning aside for good, once it’s completed; update.

By taking a little extra care, you can ensure that your assets are given to the right people. If you have any questions, or if you’d like to update your estate plan, consult with a qualified estate planning attorney.

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New York residents who are in possession of a significant amount of wealth have some great responsibilities, and some great opportunities. Accumulating wealth is challenging, but it can be just as challenging to keep these assets in the family over a number of generations. This is where legacy wealth planning in New York becomes important.

What is legacy wealth planning? In a general sense it is the process of positioning assets in a manner that allows them to stay intact and perhaps even grow over a number of generations.

Your first thought would be that this is quite simple. Assets properly invested are going to appreciate. Plus, each generation will have an opportunity to add to the family fortune. As assets are passed on from generation to generation there is no particular reason why the sum total should decrease.

This may be a logical line of thinking if death taxes did not exist.

In the United States we have a federal estate tax that carries a 40 percent maximum rate. This tax is unified with the federal gift tax, and this levy carries the same top rate. As a result, you cannot give away assets while you’re living in an effort to avoid the estate tax. This has been true since 1924 when the gift tax was first implemented.

The estate tax was first enacted in 1916. Subsequently, John D. Rockefeller gave much of his wealth to his son before he passed away to avoid the estate tax. You have to think that he was not alone among wealthy individuals at the time. The gift tax was enacted to close this window of opportunity.

At the present time the amount of the federal estate tax exclusion is $5.25 million. If you do nothing to position your assets in a tax efficient manner anything that you try to pass along that exceeds this amount is subject to the federal estate tax and its 40 percent maximum rate. New York State also has an estate tax- it charges a tax on an estate that is greater than $1,000,000. In determining whether your estate is greater than or less than the exemption amount, the government includes everything you own, including the value of your life insurance policies and the value of your home.

Legacy wealth planning is going to involve the implementation of estate tax efficiency strategies. These strategies will mitigate your estate tax exposure.

Legal devices that are utilized to this end would include charitable lead annuity trusts, generation-skipping or dynasty trusts, family limited partnerships, grantor retained annuity trusts, qualified personal residence trusts, and asset protection trusts.

Reacting to the estate tax is certainly a large part of what legacy wealth planning is all about, but this is just part of the equation. You may want to consider the proclivities and personal circumstances of the people who are going to be receiving inheritances from you. Those who are not good money handlers, minors, and people with disabilities can all be provided for in the appropriate fashion.

This is just a brief look at legacy wealth planning. If you would like to learn more, contact our firm to request a free consultation.

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You may wonder what Medicaid has to do with your life as a senior citizen. You worked hard as you traversed a career path, and payroll taxes were taken out of your salary for years. You are going to qualify for Medicare coverage when you reach the age of 65. Medicaid is for people who have no financial resources.

This is an assumption that can get some people into trouble because they are under the impression that Medicare will indeed cover all of their health care needs during their active retirement years and the twilight years that follow. In truth, Medicare doesn’t cover everything in full, so you should be prepared to pay some out-of-pocket expenses even for the things that Medicare does cover.

The above having been stated, the reason why Medicaid is indeed relevant to many senior citizens is because Medicare won’t pay for long-term care. This is a very big deal because most people are not going to be able to easily and comfortably pay for long-term care out of their retirement savings.

A stay in a nursing home can consume all of what you have and more. In the state of New York the average annual expense for a stay in a nursing home was in excess of $130,000 last year, and costs are trending upward. Ten percent of people who receive nursing home care remain in the facilities for at least five years. The average length of stay is over two years.

As it turns out the majority of people who are residing in nursing homes are enrolled in the Medicaid program. Medicaid will assist with long-term care costs, but you do have to stay within an upper asset limit.

Everything that you own does not count, and this is something that is important to understand. In the state of New York your home up to $802,000 in equity is not counted. If you are married, the healthy or community spouse may live in the home if you are institutionalized, and there is no equity limit.

Personal effects are not counted by the program, and your wedding and engagement rings would not be counted. The value of the vehicle that you use for transportation would not be counted either.

As for the rest of your assets, you may wonder if you can simply give them away. It is possible to do this as long as you plan ahead well in advance of applying for Medicaid.

If you have not given anything away within five years of applying and you meet the eligibility requirements you should have no problems. However, if you have divested yourself of assets within five years of submitting your application you would be subject to a penalty.

This penalty would delay your date of eligibility. It is important that you speak with an elder law attorney before giving away any assets.

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Probate is a very big factor to consider when you are planning your estate. There are potentially numerous different parties that would have an interest in your estate. For this reason, your estate must be probated when you use a last will to arrange for the distribution of your personally owned property.

The process of probate is in place to allow the business of the estate to be conducted before the inheritances are distributed to the heirs. Final debts must be paid during probate, including any taxes that may be due. An inventory of all of the probate property must be conducted. This can be very tedious and time-consuming.

Property appraisals may be necessary, and liquidation can come next. Ultimately, the heirs to the estate will receive what they are entitled to according to the terms of the last will.

The person who takes care of all of this business is the executor of the estate. The probate court supervises the administration. If someone wanted to challenge the will they could present an argument before the probate court. They do not need to start a separate action to challenge the will.

Once the estate has been probated and closed the heirs can finally receive their inheritances. However, this can take time. Exactly how long will depend on the specific circumstances in question.

If there is in fact a challenge the matter can be stalled for a very long time. It took about 15 years for the highly publicized case of Anna Nicole Smith versus the Marshall family to be decided. Both original litigants had passed away by the time the final decision was handed down by the Supreme Court.

Admittedly, this is a rare case, but even routine cases can take months. It is not always easy to immediately liquidate property and sort out all claims that may be made by interested parties.

Because of some of the pitfalls that go along with the process many people decide to implement probate avoidance strategies. It is possible to arrange for asset transfers to your loved ones outside of probate. When you do so you facilitate faster and more efficient distributions after you pass away.

There are other positive consequences that can come about when you utilize more advanced estate planning strategies that enable probate avoidance.

Probate does provide structure and certain protections. It is not inherently negative. The point is that you do have options.

Whether you ultimately decide to implement probate avoidance strategies or not, you should certainly have an understanding of the process when you’re planning your estate. We have assembled a rather extensive library of free special reports on virtually every aspect of estate planning and elder law. Our report on probate is available to you right now absolutely free of charge. If you would like to access this valuable report, click this link and follow the simple instructions: Free New York Probate Report.

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Medicaid planning is important for many senior citizens because of the high costs that go along with long-term care. The stark reality is that most people simply cannot pay these expenses comfortably out-of-pocket. This is because we are talking about an average annual expense exceeding $136,000 for nursing home care.

One of the misconceptions that is harbored by far to many people is the idea that Medicare will pay for everything once you become eligible for coverage. People who pay into the Medicare program sufficiently are eligible for enrollment at the age of 65 under currently existing laws.

Medicare is important, and it is very helpful, but it doesn’t cover everything in full, and it doesn’t cover long-term care at all. That’s right, you’re going to have to look elsewhere if you need assistance with your long-term care expenses.

That “elsewhere” is Medicaid for a great many people. The majority of elders in nursing homes are indeed enrolled in the Medicaid program. Many of these people were not poor throughout their lives, but long-term care expenses are so extreme they really have no other choice.

There are upper asset limits that you must stay within to qualify for Medicaid. Therefore, a common practice that people engage in is the Medicaid “spend down.” It’s kind of self-explanatory: you spend or give away your assets in advance of applying for Medicaid so that you can get within the upper asset limit.

This involves careful advance planning if you want to do it effectively. The upper asset limit is only part of the equation. You also want to consider Medicaid recovery efforts, and you should carefully evaluate the well-being of your spouse if you are entering a long-term care facility and your spouse is still healthy enough to live on his or her own. There are complex rules governing what is allowable for the healthy or community spouse.

When is it too late to start planning ahead with Medicaid eligibility in mind? In a way it is never too late. Even if you should have started earlier, you can improve your situation by working with an elder law attorney to take the right steps.

However, to be optimally prepared you should get started at least five years before you have any intentions of applying for Medicaid eligibility. This is because of the fact that the Medicaid program examines your financial transactions going back five years to make sure that you have not given away anything in an effort to spend down.

If Medicaid finds evidence of a spend down within five years of your application you will not be deemed immediately eligible for the program. You will be penalized, and this penalty will delay your eligibility. It is important to speak with an elder law attorney, and find out what you need to do to protect your loved ones.

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You have to be careful that you don’t do more harm than good when you are planning your estate. If you are not aware of all the relevant facts you may provide assets to loved ones in a way that is less than ideal, and they may ultimately pay a significant price.

The above principle applies in a number of different situations, but we would like to look at the matter of special needs planning here.

Some people with special needs depend on benefits that they get from the government to provide very expensive treatment and care. We’re talking about care that can ultimately reach the seven figures over the life of an individual that has a disability.

Medicaid and SSI are programs that are designed to help people that have very limited financial resources. If someone who was eligible for one of these programs was to suddenly come into an inheritance all of a sudden these benefits could go away.

The person who left behind the funds thought that he or she was doing something generous for a loved one. In the end, the results could be disastrous.

There are websites that advertise do-it-yourself estate planning downloads and worksheets. You may simply use one of these services to create your own last will without understanding any of the above.

If you were to consult a licensed estate planning attorney you would hear about alternatives that don’t impact government benefit eligibility, such as supplemental trusts.

The wise course of action is to steer clear of DIY notions and seek professional advice before you make any serious estate planning decisions.

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Why not just create your own estate plan using fill-in-the-blanks documents that you can find on the Internet?

There are a number of answers to this question, but the thing that we would like to point out here is the need for a custom crafted estate plan.

Do you know what legal devices are best for your specific family dynamic, your financial standing, and your intentions? If you assume that you should use a last will you may be making an uninformed decision.

Let’s look at some common scenarios that exist that would all require specific estate planning steps.

Protecting Assets

Some people are in a position where asset protection is very important. This would commonly include individuals who are surgeons, landlords, and other people who are inherently vulnerable to lawsuits.

There are a number of things that can be done to protect your assets, such as the creation of a family limited partnership or a limited liability company. Some people absolutely must take action to protect assets.

Providing for Poor Money Managers or Heirs With Personal Problems

Not everyone is a perfect person. You may have someone in the family who could be described as a spendthrift. Perhaps you have a loved one with a drug or alcohol problem.

If you do in fact have someone on your inheritance list who is not good at handling his or her finances you could account for this by making this individual the beneficiary of a sentry trust.

Assets that have been conveyed into the trust are protected from the beneficiary’s creditors. The beneficiary can receive distributions from the trust in accordance with your wishes. However, he or she does not make decisions with regard to the principal.

You name a trustee who manages the funds. This can be a person known to you, or a professional entity like a trust company.

When you use a bank or a trust company you don’t have to worry about the trustee passing away.

To provide for someone with personal problems you could create an incentive trust. With these trusts you include incentives that must be met before distributions are given out.

Children From Former Marriages

Another circumstance that would require a particular brand of estate planning is that of the blended family situation. If you get remarried and you don’t take steps to protect the interests of your children from previous marriages you are taking quite a risk.

For that matter, if you don’t do anything to protect your own interests you are taking a huge risk because over 60% of second marriages do not last.

It is possible to protect yourself and your children while still providing for your new spouse in the event of your passing if you implement the appropriate strategies.